EN EN

EUROPEAN COMMISSION

Brussels, 8.12.2017

COM(2017) 784 final

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN COUNCIL

(ARTICLE 50)

on the state of progress of the negotiations with the United Kingdom under Article 50 of

the Treaty on European Union

1

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN COUNCIL

(ARTICLE 50)

on the state of progress of the negotiations with the United Kingdom under Article 50 of

the Treaty on European Union

1. Introduction

The purpose of the present Communication is to provide the European Council (Article 50)

with the European Commission’s assessment of the state of progress of the negotiations with

the United Kingdom under Article 50 of the Treaty on European Union, in view of its meeting

on 15 December 2017.

The negotiations have been conducted between the Commission, nominated by the Council as

the Union negotiator, and the United Kingdom. The Heads of State or Government invited the

Council to nominate the Commission as Union negotiator in their Statement of 15 December

2016.1 The Commission's nomination of Michel Barnier as Chief Negotiator was welcomed

by Heads of State or Government. On 29 April 2017, the European Council (Article 50)

adopted Guidelines following the United Kingdom's notification under Article 50 TEU (the

Guidelines) which confirmed the role of the Commission as the Union negotiator.2

The European Council (Article 50) on 15 December 2017 is scheduled to discuss and

determine whether sufficient progress has been made in the first phase of the negotiations on

the orderly withdrawal of the United Kingdom from the European Union, allowing the

negotiations to proceed to their second phase.

The Commission’s assessment, as set out below, is based on the Joint Report agreed by the

negotiators of the Commission and of the United Kingdom Government. The Joint Report

was published on 8 December 2017: https://ec.europa.eu/commission/files/joint-report-

negotiators-european-union-and-united-kingdom-government-progress-during-phase-1-

negotiations-under-article-50-teu-united-kingdoms-orderly-withdrawal-european-union_en

Throughout the negotiations, the Commission has ensured an inclusive process with close

contacts and regular meetings with the EU27. The Commission has also been in close and

regular contact with the European Parliament to ensure that its views and positions are duly

taken into account. On 4 December 2017, President Juncker met with the European

Parliament’s Brexit Steering Group to take stock of progress on three withdrawal issues,

including with regard to the important issue of citizens’ rights.

The negotiations have been carried out with unprecedented transparency. Each of the essential

principles papers defining the Commission’s negotiating position, the agenda of every

negotiating round, as well as the Commission’s recommendation to open negotiations have

been published.3

The Joint Report is not the Withdrawal Agreement. Should the European Council consider

that sufficient progress has been made in the negotiations, the Withdrawal Agreement based

on Article 50 of the Treaty on European Union will need to be drafted on the basis of the Joint

Report and the outcome of the negotiations on other withdrawal issues. The Withdrawal

1 http://www.consilium.europa.eu/media/24173/15-euco-statement.pdf

2 The role of the Commission was confirmed by Council Decision of 22 May 2017 nominating the Commission

as the Union negotiator, see http://data.consilium.europa.eu/doc/document/XT-21016-2017-INIT/en/pdf. 3 https://ec.europa.eu/commission/brexit-negotiations/negotiating-documents-article-50-negotiations-united-

kingdom_en?field_core_tags_tid_i18n=351

2

Agreement will be concluded by the Council upon a proposal from the Commission, and after

obtaining consent of the European Parliament, and is subject to approval by the United

Kingdom in accordance with its own procedures.

2. Background

On 29 March 2017, the United Kingdom notified the European Council of its intention to

withdraw from the European Union in accordance with Article 50 TEU. On 29 April 2017,

the European Council (Article 50) adopted its Guidelines (hereafter the ‘Guidelines’)4, and on

22 May 2017, the General Affairs Council (Article 50) authorised the Commission to open

negotiations with the United Kingdom and adopted directives for the negotiation (hereafter

the ‘negotiating directives’)5.

According to point 4 of the Guidelines, ‘the first phase of the negotiations will aim to:

- provide as much clarity and legal certainty as possible to citizens, businesses,

stakeholders and international partners on the immediate effects of the United

Kingdom’s withdrawal from the Union;

- settle the disentanglement of the United Kingdom from the Union and from all the

rights and obligations the United Kingdom derives from commitments undertaken as

Member State.

The European Council will monitor progress closely and determine when sufficient progress

has been achieved to allow negotiations to proceed to the next phase.’6

Point 5 of the Guidelines indicates that ‘[w]e stand ready to engage in preliminary and

preparatory discussions to this end in the context of negotiations under Article 50 TEU, as

soon as the European Council decides that sufficient progress has been made in the first

phase towards reaching a satisfactory agreement on the arrangements for an orderly

withdrawal.’7

The negotiating directives indicate in point 3 that the main objective of the Withdrawal

Agreement is ‘to ensure an orderly withdrawal of the United Kingdom from the European

Union and from the European Atomic Energy Community.’

Furthermore, the negotiating directives state in point 10 that ‘these negotiating directives

prioritise some matters which, at this stage, have been identified as necessary to ensure an

orderly withdrawal of the United Kingdom from the Union. Other matters not covered by this

set of negotiating directives, such as services, will be part of subsequent sets of negotiating

directives.’

In its conclusions of its meetings on 20 October 20178, the European Council (Article 50)

stated that ‘[i]n the light of the first five rounds of negotiations, taking into account the

assessment presented by the Union negotiator and reaffirming its guidelines of 29 April 2017,

the European Council:

4 EUCO XT 20004/17, available at http://www.consilium.europa.eu/media/21763/29-euco-art50-

guidelinesen.pdf. 5 XT 21016/17, available at https://www.consilium.europa.eu/media/21766/directives-for-the-negotiation-

xt21016-ad01re02en17.pdf 6 Bold added.

7 Idem.

8 EUCO XT 20014/17, available at http://www.consilium.europa.eu/media/23512/20-euco-conclusions-

art50.pdf.

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• welcomes the progress made regarding citizens’ rights and invites the negotiator to build on

the convergence achieved so as to provide the necessary legal certainty and guarantees to all

concerned citizens and their family members who shall be able to exercise directly their rights

derived from EU law and protected by the [W]ithdrawal [A]greement, including through

smooth and simple administrative procedures and the role of the Court of [J]ustice of the

European Union;

• acknowledges that, as regards Ireland, there has been some progress on convergence on

principles and objectives regarding protection of the Good Friday Agreement and

maintenance of the Common Travel Area, and invites the Union negotiator to pursue further

refinement of these principles, taking into account the major challenge that the UK’s

withdrawal represents, including as regards avoidance of a hard border, and therefore

expecting the UK to present and commit to flexible and imaginative solutions called for by the

unique situation of Ireland;

• notes that, while the UK has stated that it will honour its financial obligations taken during

its membership, this has not yet been translated into a firm and concrete commitment from the

UK to settle all of these obligations’ (point 1).

The European Council (Article 50) furthermore stated that ‘[a]t its next session in December,

the European Council will reassess the state of progress in the negotiations with a view to

determining whether sufficient progress has been achieved on each of the three above issues.

If so, it will adopt additional guidelines in relation to the framework for the future

relationship and on possible transitional arrangements which are in the interest of the Union

and comply with the conditions and core principles of the guidelines of 29 April 2017. Against

this background, the European Council invites the Council (Art. 50) together with the Union

negotiator to start internal preparatory discussions’ (point 3).

3. The first phase of the negotiations

The negotiating directives have provided for a clear structure and a united EU approach to the

negotiations. Throughout the negotiations, the EU has maintained its unity and acted as one.

The Commission’s Chief Negotiator, Michel Barnier, has made clear from the outset that the

Commission was available to negotiate at any time. In practice, there have been six

negotiation rounds with the United Kingdom:

the first round on 19 June 2017;

the second round from 17 to 20 July 2017;

the third from 28 to 31 August 2017;

the fourth from 25 to 28 September 2017;

the fifth from 9 to 12 October 2017; and

the sixth on 9 and 10 November 2017.

Subsequently, the Commission and United Kingdom negotiators have had constant direct

contacts.

While progress has been made on a number of elements relating to the orderly withdrawal, in

line with the Guidelines and the negotiating directives, the first phase of negotiations has

given priority to three issues which have been identified as particularly important for ensuring

an orderly withdrawal:

a) the rights of citizens;

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b) the dialogue on Ireland/Northern Ireland; and

c) the financial settlement.

In addition, the negotiations covered other separation issues, on which negotiators made

limited progress:

Euratom-related (nuclear specific) issues;

ensuring continuity in the availability of goods placed on the market under Union law

before withdrawal;

judicial cooperation in civil and commercial matters;

police and judicial cooperation in criminal matters;

ongoing Union judicial procedures;

ongoing Union administrative proceedings; and

issues relating to the functioning of the Union institutions, agencies and bodies.

There were also discussions of general governance of the Withdrawal Agreement aspects not

related to citizens’ rights.

There were no discussions yet on the following issues for which the EU had presented

essential principles papers on 21 September 2017:

intellectual property rights (including geographical indications);

ongoing public procurement procedures;

customs-related matters needed for an orderly withdrawal from the Union; and

use of data and protection of information obtained or processed before the withdrawal

date.

The following section addresses each of these issues which have been discussed during

the negotiations in detail, based on the Joint Report, referred to above. Where the

position of the United Kingdom negotiator is reflected, this is also done on the basis of

the Joint Report.

4. The positions of the negotiators of the Commission and of the United Kingdom

a) Citizens’ rights

The Guidelines state: ‘The right for every EU citizen, and of his or her family members, to

live, to work or to study in any EU Member State is a fundamental aspect of the European

Union. Along with other rights provided under EU law, it has shaped the lives and choices of

millions of people. Agreeing reciprocal guarantees to safeguard the status and rights derived

from EU law at the date of withdrawal of EU and UK citizens, and their families, affected by

the United Kingdom’s withdrawal from the Union will be the first priority for the

negotiations. Such guarantees must be effective, enforceable, non-discriminatory and

comprehensive, including the right to acquire permanent residence after a continuous period

of five years of legal residence. Citizens should be able to exercise their rights through

smooth and simple administrative procedures’ (point 8).

Content of citizens’ rights

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The Commission set out its position in the ‘Essential principles on citizens’ rights’ published

on 12 June 2017. On 26 June 2017, the United Kingdom published the document ‘The United

Kingdom’s exit from the European Union - Safeguarding the Position of EU Citizens Living

in the UK and UK Nationals Living in the EU’.

The principles underlying the Union’s position are that the Withdrawal Agreement should

protect the rights of Union citizens, United Kingdom nationals and their family members who,

at the date of withdrawal, have enjoyed rights relating to free movement under Union law, as

well as rights which are in the process of being obtained and the rights the enjoyment of

which will intervene at a later date.

The negotiators have reached a fair and equitable common understanding, based on Union

law concepts as interpreted by the Court of Justice of the European Union, on the protection

of citizens who have built their lives on the basis of rights flowing from United Kingdom

membership of the European Union.

The core principles of the common understanding between negotiators, which is built entirely

on the negotiating directives given by the Council and reflects the priorities established by the

European Parliament in its resolutions of 5 April and 3 October 2017, enable both Union

citizens and United Kingdom nationals, as well as their respective family members, for the

rest of their lives, to continue to exercise their rights derived from Union law in each other’s

territories, where those rights are based on life choices made before the date which the Joint

Report calls the ‘specified date’.

This ‘specified date’ should be the date of the United Kingdom’s withdrawal from the Union,

without prejudice to discussions, in the second phase of the negotiations, on a possible

transitional period and on appropriate adaptations flowing from it as regards the "specified

date". In the Commission’s view, in case of any transitional period implying the continued

application of the Union's acquis on the fundamental freedoms, it is clear that citizens would

need to be fully entitled to their rights to free movement as before the United Kingdom’s

withdrawal, and that, therefore, the provisions of the Withdrawal Agreement on the content of

citizens’ rights and on governance as regards those rights can only become applicable at the

end of such transitional period. In other words, in such case, the ‘specified date’ should, in the

Commission's view, be defined not as the date of the United Kingdom’s withdrawal, but as

that of the end of the transitional period.

The common understanding reflected in the Joint Report means that both Union citizens and

United Kingdom nationals, as well as their respective family members can continue to live,

work or study as they currently do under the same conditions as under Union law, benefiting

from the full application of the prohibition of any discrimination on grounds of nationality.

The only restrictions which apply are those derived from Union law.

Those who have not yet acquired permanent residence rights – if they have not lived in the

host State for at least five years – will be fully protected by the Withdrawal Agreement, and

be able to acquire permanent residence rights also after the United Kingdom’s withdrawal.

It has also been agreed that the Withdrawal Agreement will protect the current rights of

spouses, registered partners, parents, grandparents, children, grandchildren and a

person in a durable relationship, who do not yet live in the same State as the Union citizen

or the United Kingdom national, to join them in the future.

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In the Commissions view, the reunification right referred to in the previous paragraph shall

also cover future partners or spouses of Union citizens and United Kingdom nationals, who

are not yet partners or spouses at the ‘specified date’, as defined above. This important matter

should be dealt with in the second phase of the negotiations and will inevitably be linked to

the level of ambition of the future partnership between the EU and the United Kingdom.

According to the understanding, all children will be protected by the Withdrawal

Agreement, wherever they are born before or after the United Kingdom’s withdrawal, or

whether they are born inside or outside the State where the responsible Union citizen or the

United Kingdom national resides. The only exception foreseen concerns children born after

the United Kingdom’s withdrawal and for which the parent not covered by the Withdrawal

Agreement has sole custody under the applicable family law.

Applicable procedures

In addition to the important substantial rights for citizens referred to above, the European

Parliament and the Commission both attach particular importance to the existence of smooth

and simple administrative procedures for citizens to exercise their rights. This aspect of the

negotiation was discussed in detail between President Juncker and the European Parliament’s

Brexit Steering Group on 4 December 2017.9 According to the Joint Report, only what is

strictly necessary and proportionate to determine whether the criteria for lawful residence

have been met, can be required, and any unnecessary administrative burdens will be avoided.

This is all the more important as the ”special status” that the United Kingdom will set up will

be the sole procedure for EU citizens to avail themselves of the rights provided for in the

Withdrawal Agreement. The negotiators have agreed that the procedures will be transparent,

smooth and streamlined. Costs must not exceed that imposed on nationals for issuing similar

documents. Those already holding a permanent residence document will be able to exchange

it for the 'special status', free of charge.

The administrative procedures for applications for the 'special status' under the Withdrawal

Agreement will be clearly specified therein: the Agreement will contain provisions that reflect

the current Union law requirements concerning the evidence citizens shall provide to obtain

the 'special status', and it will specify that the host State cannot require anything more than is

strictly necessary and proportionate to determine whether the criteria for lawful residence

have been met. Errors, involuntary omissions or non-respect of the deadline to submit the

application will be dealt with under a proportionate approach. The overall objective is to

ensure that the process is as clear, simple and non-bureaucratic as possible for the affected

citizens. The Commission will pay particular attention to this aspect of the negotiation when

drafting the Withdrawal Agreement and will seek to take into account the European

Parliament’s concerns.

In this context, it is particularly important to make sure that no citizen will be deprived of his

or her rights under the Withdrawal Agreement until a final decision by the competent

authorities, or a final judgment, on an application made for the 'special status' has been taken.

This has been agreed by the negotiators. The Withdrawal Agreement will ensure that the same

safeguards against any restriction of rights as those provided by Union law will apply.

9 It was also mentioned in a letter by Guy Verhofstadt, the Chair of the Brexit Steering Group to Michel Barnier

on 29 November 2017, see http://www.europarl.europa.eu/news/en/press-room/20171129IPR89108/brexit-

progress-but-not-enough.

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Citizens will maintain their right to healthcare, pensions and other social security benefits,

and if they are entitled to a cash benefit from one state, they may generally receive it even if

they decide to live in another state. When citizens claim a benefit, also after the United

Kingdom's withdrawal, previous periods of insurance, work or residence in the Union or in

the United Kingdom will be taken into account.

Governance of the Withdrawal Agreement as regards citizens’ rights

The Commission published its ‘Position paper on Governance’ on 13 July 2017. The United

Kingdom has not published any position paper on this topic. The principles underlying the

Union’s position as regards governance in relation to citizens rights’ are that the citizens’

rights set out in the Withdrawal Agreement should be granted as directly enforceable rights in

both the United Kingdom and in the Union and that the competence of the Court of Justice of

the European Union should be preserved with regard to the consistent interpretation and

application of the citizens' rights set out in the Withdrawal Agreement. To this end, the

common understanding reached by the negotiators provides that the Withdrawal Agreement

will contain an explicit provision that citizens will be able to rely directly on the rights

enshrined therein and that inconsistent or incompatible rules will be disapplied.

The United Kingdom negotiator has committed that the United Kingdom adopts primary

legislation to incorporate fully the citizens’ rights Part of the Withdrawal Agreement into its

legal order. Once this primary legislation adopted, unless Parliament expressly repeals it in

future, the provisions of the citizens’ rights Part will prevail over inconsistent or incompatible

legislation.

It is essential to ensure a consistent interpretation of citizens’ rights enshrined in the

Withdrawal Agreement, in the Union as well as in the United Kingdom. To this end, the

common understanding reached by the negotiators, which recognises the role of the Court of

Justice as the ultimate arbiter of the interpretation of Union law, provides that:

United Kingdom courts or tribunals shall have due regard to relevant decisions of the

Court of Justice of the European Union given after the withdrawal date;

United Kingdom courts or tribunals should be enabled having had due regard to

whether relevant case law exists, to ask the Court of Justice of the European Union,

where they consider necessary, questions of interpretation of those rights. This

mechanism should be available for United Kingdom courts or tribunals for litigation

brought within 8 years from the date of application of the citizens’ rights Part;

exchange of case law between courts, regular judicial dialogue, as well as the

possibility for the United Kingdom Government and the Commission to intervene in

relevant cases before the Court of Justice of the European Union and before United

Kingdom courts and tribunals respectively should be foreseen; and

the implementation and application of citizens’ rights in the Union should be

monitored by the Commission acting in conformity with the Union Treaties. In the

United Kingdom, this role will be fulfilled by an independent national authority. To

ensure reciprocity and mirror the role of the Commission, the Commission considers

that the independent national authority should have the power not just to receive to

receive complaints by EU citizens resident in the United Kingdom who consider that

their rights under the Withdrawal Agreement have been infringed, but also initiate

appropriate legal actions before United Kingdom courts on their behalf. This issue will

be reflected in the Withdrawal Agreement and the Commission will pay particular

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attention to it in the second phase of the negotiations when the details of the role of the

authority will be discussed.

It has been agreed that the approach described above does not prejudge future discussions on

the general governance of the Withdrawal Agreement or any possible transitional

arrangements.

b) The dialogue on Ireland/Northern Ireland

The Guidelines state: ‘The Union has consistently supported the goal of peace and

reconciliation enshrined in the Good Friday Agreement in all its parts, and continuing to

support and protect the achievements, benefits and commitments of the Peace Process will

remain of paramount importance. In view of the unique circumstances on the island of

Ireland, flexible and imaginative solutions will be required, including with the aim of

avoiding a hard border, while respecting the integrity of the Union legal order. In this

context, the Union should also recognise existing bilateral agreements and arrangements

between the United Kingdom and Ireland which are compatible with EU law’ (point 11).

The United Kingdom published its position paper ‘Northern Ireland and Ireland’ on 16

August 2017. On 21 September 2017, the Commission published ‘Guiding principles for the

Dialogue on Ireland/Northern Ireland’.

Issues unique to Ireland, as recognised in the Guidelines and the negotiating directives,

include:

the protection of the gains of the peace process and of the Good Friday (Belfast)

Agreement in all its parts;

the maintenance of existing bilateral agreements and arrangements between the

United Kingdom and Ireland, including the Common Travel Area; and

specific issues arising from Ireland’s unique geographic situation, including the aim

of avoiding a hard border between Ireland and Northern Ireland, while preserving the

integrity of the Single Market.

Agreement between the negotiators was reached at an early stage in the dialogue on

Ireland/Northern Ireland on the overarching common objectives which reflect those in the

Guidelines and the negotiating directives. Negotiators also agreed that the commitments and

principles in relation to Ireland/Northern Ireland will not pre-determine the outcome of wider

discussions on the future EU-UK relationship, and must be upheld in all circumstances.

Within the common understanding, the United Kingdom negotiator committed that the United

Kingdom would protect the operation and institutions of the Good Friday (Belfast)

Agreement, and avoid a hard border, including physical infrastructure or related checks and

controls. The United Kingdom also explicitly committed to the United Kingdom respecting

Ireland's ongoing EU membership and all of the corresponding rights and obligations.

The United Kingdom negotiator also provided further the necessary assurance that the United

Kingdom would in the future operate the Common Travel Area – a bilateral arrangement

between the United Kingdom and Ireland predating common EU membership – in full respect

of Ireland's obligations as an EU Member State, in particular without affecting the right to

free movement of EU citizens to and from Ireland.

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The negotiators recalled the roles, functions and safeguards of the Northern Ireland Executive,

the Northern Ireland Assembly and the North-South Ministerial Council (including its cross-

community provisions), as set out in the Good Friday (Belfast) Agreement.

The negotiators carried out an extensive mapping exercise of North-South cooperation, as a

central part of the Good Friday (Belfast) Agreement. The exercise showed that this

cooperation relies, to a significant extent, on the common EU legal and policy framework. It

also identified regulatory divergence between Northern Ireland and Ireland as the biggest

single risk to its continuation and future development.

Whilst the United Kingdom remains committed to protecting and supporting continued North-

South cooperation across the full range of contexts and frameworks, including after

withdrawal, the common understanding provides that the United Kingdom aims to achieve

this protection and the avoidance of a hard border through the overall EU-United Kingdom

relationship. This intention seems hard to reconcile with the United Kingdom’s

communicated decision to leave the internal market and the Customs Union.

Should these objectives not be met through the future relationship, the United Kingdom

committed to proposing a specific solution to address the unique circumstances of the island

of Ireland for agreement with the EU. The EU will need to ensure that any such solution does

not affect Ireland’s place in the internal market, and consequently the integrity of the internal

market.

In the absence of agreed solutions, the United Kingdom committed to maintaining full

alignment with those rules of the internal market and the Customs Union which, now or in the

future, support North-South cooperation, the all-island economy, and the protection of the

Good Friday (Belfast) Agreement. In this context, implementation and oversight mechanisms

for the specific arrangements to be found will be established to safeguard the integrity of the

internal market.

The Joint Report also contains a number of unilateral commitments by the United Kingdom.

As regards other elements of the Good Friday (Belfast) Agreement which are recalled in the

EU’s guiding principles for the dialogue on Ireland/Northern Ireland, the negotiators have

agreed to examine possible arrangements for ensuring that EU citizenship rights of Irish

citizens residing in Northern Ireland can continue to be enjoyed fully in the Union. In relation

to fundamental rights and safeguards under the Good Friday (Belfast) Agreement, the United

Kingdom committed to ensuring that no diminution of rights is caused by its departure from

the EU.

These commitments will need to be translated into workable, practical solutions in the second

phase of the negotiations. Against this backdrop, it is important that there is agreement

between the negotiators to continue work on Ireland/Northern Ireland in a distinct strand of

negotiations in the second phase. The Commission considers this issue to be of utmost

importance.

Cross-border programmes benefitting North/South cooperation are of great value. In this

context, the Commission is of the opinion that the PEACE and INTERREG programmes, to

which the United Kingdom is a partner, should continue beyond the current programming

period. To this end, the Commission intends to propose the continuation of these programmes,

based on their existing management structures, in its proposal for the next Multi-annual

Financial Framework, foreseen for May 2018.

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c) The financial settlement

The Guidelines state: ‘A single financial settlement - including issues resulting from the

[Multi-annual Financial Framework] as well as those related to the European Investment

Bank (EIB), the European Development Fund (EDF) and the European Central Bank (ECB) -

should ensure that the Union and the United Kingdom both respect the obligations resulting

from the whole period of the United Kingdom membership in the Union. The settlement

should cover all commitments as well as liabilities, including contingent liabilities’ (point 10).

The Commission published its ‘Essential Principles on Financial Settlement’ on 12 June

2017. The United Kingdom has not published a position paper on the financial settlement.

The United Kingdom agreed to honour its share of financing of all the obligations undertaken

while it was a member of the Union, in relation to the EU budget (and in particular the Multi-

annual Financial Framework 2014-2020), the European Investment Bank, the European

Central Bank, the Facility for Refugees in Turkey, EU Trust Funds, Council agencies and also

the European Development Fund.

Against this backdrop, the Commission and the United Kingdom negotiators have agreed on a

fair methodology to be followed to calculate the obligations to be honoured by the United

Kingdom in the context of its withdrawal.

The principles underlying the agreed methodology are that:

no Member State should pay more or receive less because of the United Kingdom's

withdrawal from the Union;

the United Kingdom should pay its share of the commitments taken during its

membership; and

the United Kingdom should neither pay more nor earlier than if it had remained a

Member State. This implies in particular that the United Kingdom should pay based

on the actual outcome of the budget, i.e. adjusted to implementation.

As regards the Union budget component of this financial settlement, the United Kingdom will

contribute to, and participate in, the implementation of the EU annual budgets for the years

2019 and 2020 as if it had remained in the Union. It will also contribute its share of the

financing of the budgetary commitments outstanding on 31 December 2020 (i.e. Reste à

liquider) as well as its share of the financing of the Union’s liabilities incurred before 31

December 2020 except for liabilities with corresponding assets. In addition, the United

Kingdom will remain liable for its share of the EU’s contingent liabilities as established at the

date of withdrawal10

.

The implementation of the agreed methodology and the schedule of payments will be based

on the following principles:

the United Kingdom will not finance any commitments that do not require funding

from Member States, and will receive its share of any financial benefits that would

have fallen to it had it remained a Member State;

10

For contingent liabilities related to legal cases as a result of participation in the budget, programmes and

policies, the cut-off date will be 31 December 2020.

11

United Kingdom payments relating to United Kingdom participation in EU annual

budgets in 2019 and 2020 will be based on a United Kingdom share calculated as if

the United Kingdom had remained a Member State. Beyond 2020, the United

Kingdom share in relation to the EU budget will be a percentage calculated as the

average of United Kingdom contributions to the budget over 2014-2020;

United Kingdom payments arising from the financial settlement will become due as if

the United Kingdom had remained a Member State;

the financial settlement will be drawn up and paid in euro; and

the second phase of negotiations will address the practical modalities for

implementing the agreed methodology and the schedule of payments.

Following withdrawal from the Union, the United Kingdom will continue to participate in the

Union programmes financed by the Multi-annual Financial Framework for 2014-2020 until

their closure, except for the programmes in which the United Kingdom did not participate

before and those which can give rise to contingent liabilities the United Kingdom will not be

liable for after withdrawal. Participation in Union programmes will require the United

Kingdom and United Kingdom beneficiaries to respect all relevant Union legal provisions.

As regards the European Investment Bank, the negotiators have agreed on principles ensuring

continuation of the operational functioning of the European Investment Bank. The United

Kingdom will provide a guarantee for an amount equal to its callable capital on the day of

withdrawal for guaranteeing the stock of operations at this time. This guarantee will be

maintained for a certain period and then decreased in line with the amortisation of this stock.

The United Kingdom will also be reimbursed in instalments its paid-in capital, starting end of

2019 but will provide an additional guarantee replacing the reimbursed paid-in capital. Apart

from these reimbursements, the European Investment Bank will not make any other payment,

return or remuneration on account of the withdrawal of the UK from the European Investment

Bank or on account of the provision by the UK of a guarantee. The United Kingdom will also

maintain the European Investment Bank’s privileges and immunities under Protocols 5 and 7

annexed to the Treaties throughout the amortisation of the European Investment Bank’s stock

of operations at the date of withdrawal.

Concerning the European Central Bank, the negotiators have agreed that the paid-in capital of

the United Kingdom in the European Central Bank will be reimbursed to the Bank of England

after the date of withdrawal.

The United Kingdom will honour the commitments it made before withdrawal for

participating in the Facility for Refugees in Turkey and the EU Emergency Trust Fund for

stability and addressing root causes of irregular migration and displaced persons in Africa,

according to existing arrangements.

Finally, the United Kingdom will honour the total commitments it made before withdrawal in

relation to the European Development Fund according to existing arrangements, including for

payments related to its share of the outstanding commitments made under previous European

Development Funds.

The Commission welcomes the United Kingdom Government’s offer to discuss with Union

Agencies located in London how the United Kingdom might facilitate their relocation, in

particular as regards reducing the withdrawal costs.

Other separation issues

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The Guidelines state: ‘Also, the United Kingdom leaving the Union will impact EU businesses

trading with and operating in the United Kingdom and UK businesses trading with and

operating in the Union. […] Negotiations should seek to prevent a legal vacuum once the

Treaties cease to apply to the United Kingdom and, to the extent possible, address

uncertainties’ (point 9); ‘The [W]ithdrawal [A]greement would also need to address potential

issues arising from the withdrawal in other areas of cooperation, including judicial

cooperation, law enforcement and security’ (point 14). The Guidelines also state:

‘Arrangements ensuring legal certainty and equal treatment should be found for all court

procedures pending before the Court of Justice of the European Union upon the date of

withdrawal that involve the United Kingdom or natural or legal persons in the United

Kingdom. The Court of Justice of the European Union should remain competent to adjudicate

in these procedures. Similarly, arrangements should be found for administrative procedures

pending before the European Commission and Union agencies upon the date of the

withdrawal that involve the United Kingdom or natural or legal persons in the United

Kingdom. In addition, arrangements should be foreseen for the possibility of administrative

or court proceedings to be initiated post-exit for facts that have occurred before the

withdrawal date’ (point 16).

The Union communicated to the United Kingdom ten Essential Principles papers setting out

its negotiating position on other separation issues, namely with regard to Euratom-related

issues (nuclear materials and safeguard equipment); ongoing Union judicial and

administrative procedures; issues relating to the functioning of the Union institutions,

agencies and bodies; goods placed on the market under union law before the withdrawal

date; ongoing police and judicial cooperation in criminal matters; ongoing judicial

cooperation in civil and commercial matters; intellectual property rights (including

geographical indications); ongoing public procurement procedures, and customs-related

matters needed for an orderly withdrawal from the Union.

Agreement has been found on a number of issues but there remain areas where further

discussion is required.

On Euratom-related (nuclear specific) issues, the Commission and United Kingdom

negotiators have agreed principles for addressing the key separation issues relating to the

United Kingdom’s withdrawal from Euratom. This includes:

agreement that the United Kingdom will be responsible for international nuclear

safeguards in the United Kingdom and is committed to a future regime that provides

coverage and effectiveness equivalent to existing Euratom arrangements;

agreed principles on ownership of special fissile material (save for material held in

the United Kingdom by EU27 entities); and

agreed principles on responsibility for spent fuel and radioactive waste.

Regarding Special Fissile Material held in the United Kingdom by EU27 undertakings, the

United Kingdom has not yet accepted that Euratom rights should continue (e.g. right to

approve future sale or transfer of these materials). Both sides agree that ultimate responsibility

for spent fuel and radioactive waste remains with the State where it was produced, in line with

international conventions and European Atomic Energy Community legislation. Agreement

appears to be in sight but must be finalised in regard to the transfer to the United Kingdom of

the equipment currently used by Euratom for the purpose of implementing safeguards.

Finally, disagreement persists regarding the validity of the approvals of exports from the

Union to the United Kingdom after withdrawal.

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On ensuring continuity in the availability of goods placed on the market under Union

law before withdrawal it has been agreed between the negotiators that:

the goods placed on the market under Union law before withdrawal may freely

circulate on the markets of the United Kingdom and the Union;

there should be no need for product modifications or re-labelling;

goods may be put into service where provided in Union law; and

goods concerned should be subject to continued oversight.

Substantial work is still necessary to agree on the key notion of ‘placing on the market’. More

fundamental disagreement persists on the EU’s intention to apply EU rules on importation to

all animal-derived products as from the withdrawal date, irrespective of when they were

placed on the market, as well as on the competence for performing EU compliance activities

under Union law after withdrawal. On this last point, the Commission negotiator insists on

any compliance activity post-withdrawal to be performed by competent authorities or bodies

under current EU law, whilst the United Kingdom negotiator wants the United Kingdom to

retain temporary (but potentially open ended) competence for such activities.

On cooperation in civil and commercial matters there is general consensus between the

negotiators that:

Union rules on conflict of laws should continue to apply to contracts before

withdrawal date and non-contractual obligations where an event causing damage

occurred before the withdrawal date;

EU law on jurisdiction should continue to apply to legal proceedings instituted before

the withdrawal date;

as regards recognition and enforcement of judgments, relevant EU law should

continue to apply with regard to judgments handed down before withdrawal; and

relevant pending judicial cooperation should be finalised.

Work is still needed on whether EU law should continue to govern the recognition and

enforcement of judgments handed down after withdrawal, but in proceedings that were

ongoing on the withdrawal date. Finally, there is disagreement as to whether a choice of court

clause concluded before withdrawal should trigger the application of EU law on recognition

and enforcement of judgments in litigation after withdrawal.

On police and judicial cooperation in criminal matters there is broad agreement that:

all structured and formalised cooperation procedures ongoing on the withdrawal date

that have passed a certain threshold (to be defined) should be completed under Union

law.

Additional work needs to be done on the list of the instruments concerned, and in order to

agree on the need to identify an ‘end point’ ascertaining completion of the relevant

procedures. Further discussions are also needed in order to clarify the agreement that EU

instruments providing for procedural rights would continue to apply, throughout such

procedures after withdrawal.

On ongoing Union judicial procedures, it has been agreed between the negotiators that:

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the Court of Justice of the European Union should remain competent for United

Kingdom judicial procedures with the United Kingdom as applicant or defendant and

for preliminary references originating in the United Kingdom, registered at the Court

of Justice of the European Union on the date of withdrawal; and

those procedures should continue through to a binding judgment.

There is however persisting disagreement between the negotiators on several issues including

the question of the continued competence of the Court of Justice of the European Union in

relation to facts having arisen before the United Kingdom’s withdrawal, the enforceability of

the decisions of the Court of Justice of the European Union after withdrawal and the

possibility for the United Kingdom to intervene before the Court of Justice of the European

Union in the future.

On ongoing Union administrative proceedings there is at present no position of the United

Kingdom negotiator on the Union position that all pending administrative compliance

procedures should be completed with a binding force and possibly result in binding

subsequent judicial procedures.

On issues relating to the functioning of the Union institutions, agencies and bodies, the

negotiators have agreed that:

an arrangement which closely mirrors Union privileges and immunities should remain

applicable to activities that took place before withdrawal and as regards new activities

in the United Kingdom foreseen in the Withdrawal Agreement;

both sides should continue to ensure compliance with obligations of professional

secrecy; and

classified information and other documents obtained by both sides whilst the United

Kingdom was a Member State should retain the same level of protection as before

withdrawal.

There remains disagreement on the role of the Court of Justice of the European Union with

regard to the lifting of EU immunities. While the United Kingdom maintains that this question

has to be examined in the context of the broader discussion on the role of the Court of Justice

of the European Union, the Union position is that the involvement of the Court of Justice of

the European Union in this case is different from any role for the Court of Justice of the

European Union as a possible dispute settlement body for the Withdrawal Agreement.

With regard to the general governance of the Withdrawal Agreement, the Commission is

of the view that more work is needed.

The Commission’s ‘Essential Principles paper on Governance’ set out the Union’s proposal

for a complete and effective governance mechanism. While some discussions have taken

place on dispute resolution and the monitoring of the functioning of the Withdrawal

Agreement, including the possibility of setting up a joint committee, significant divergences

remain. More specifically, the United Kingdom has made clear its opposition to according a

central role to the Court of Justice of the European Union, while the Commission has stressed

the need to protect the autonomy of the Union and of its legal order, including the role of the

Court of Justice, as underlined in the European Council guidelines of 29 April 2017. Further

discussions are needed on the institutional arrangements to jointly manage and monitor the

functioning of the Withdrawal Agreement (for example via a joint committee), on the crucial

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question of how compliance with the Withdrawal Agreement by both sides can be effectively

enforced, and on how disputes that may emerge in this regard should be settled.

5. Conclusion

On the basis of the foregoing and the Joint Report of the negotiators, as well as the

confirmation by Prime Minister May to President Juncker during their meeting on 8

December 2017 of the United Kingdom Government’s endorsement of the Joint Report,

the Commission recommends to the European Council (Article 50) to conclude that

sufficient progress has been made in the first phase of the negotiations on the orderly

withdrawal of the United Kingdom from the European Union, allowing the negotiations

to proceed to their second phase.

Should the European Council consider that sufficient progress has been made in the

negotiations, the Withdrawal Agreement based on Article 50 of the Treaty on European

Union should be drafted on the basis of the Joint Report and the outcome of the negotiations

on other separation issues.

Negotiations should be complete by autumn 2018 to allow good time for the Withdrawal

Agreement to be concluded by the Council after obtaining consent of the European

Parliament, and to be approved by the United Kingdom in accordance with its own procedures

before 29 March 2019.

The Guidelines of 29 April 2017 state that the negotiations may seek to determine

transitional arrangements which should be in the interest of the Union. Such transitional

arrangements would be based on Article 50 of the Treaty on European Union and would by

their very nature be for a limited period of time. During such a potential transitional period,

the entire acquis – the full corpus of EU law – would continue to apply in the United

Kingdom. Any such transitional arrangements would require existing Union regulatory,

budgetary, supervisory, judiciary and enforcement instruments and structures to apply. Should

the European Council (Article 50) recognise that sufficient progress has been made, the

Commission stands ready to begin work immediately on such transitional arrangements,

which could also provide bridges to the future relationship.

If the European Council (Article 50) so decides, the Commission also stands ready to start

exploratory discussions on the future relationship between the European Union and the

United Kingdom.